Click to edit Master title styleHealth Care Reform: Updates and Compliance Strategies

Dennis Fiszer, JDHUB InternationalEastern Region Chief Compliance Officer

Today’s agenda• PPACA in context• Individual mandate• Urgent requirements for 2013• Employer mandate• Recent guidance (12/28/2012)• Compliance Strategies• Advance Planning

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Click to edit Master title stylePPACA in context

Full speed ahead

Existing RequirementsRecent federal healthcare reform measures affecting employers(Note: Not an exhaustive listing)

1996• HIPAA (portability, nondiscrimination, standard electronic transactions, privacy, security, etc.)• MHPA• NMHPA• WHCRA

2003• MMA (HSAs and Medicare Part D)

2008• GINA• MHPA Amendments• Michelle’s Law• MSP Reporting

2009• CHIPRA• ARRA (COBRA subsidy + HIPAA breach notification)• COBRA subsidy extension

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Election Impact for PPACA?

Full speed ahead with PPACA implementation• Opponents lack numbers to meaningfully inhibit

PPACA• Congressional support for:

– Status quo• Impact on federal agencies

– Regulatory floodgates opening– 15K+ pages of new guidance issued

• One more Presidential election cycle (2016)

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Click to edit Master title styleIndividual Mandate

Supreme Court Validation

Individual MandateIndividual mandate starts in 2014

• Requires individuals hold health coverage or pay a penalty (limited exceptions)

– Fines (assessed as “taxes”) for failure to purchase• $95 or 1.0% of adjusted income in 2014• $325 or 2.0% of adjusted income in 2015• $695 or 2.5% of adjusted income in 2016

• Individual subject to penalty unless shows evidence of coverage for at least nine (9) months of the year– Generous grace periods for Exchange premium payment

Supreme Court upholds individual mandate (06/28/12)• Court cites Congressional taxing authority

– If tax, assessments should be deductible– Statute specifically says “not deductible”– Possible legal challenges

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Click to edit Master title styleUrgent Employer Health Reform Requirements

A look ahead

Urgent RequirementsKey compliance duties include the following:

• Form W-2 reporting requirement – Starting with W-2 reports issued in January 2013

• Just reported value, not taxable (yet)• Box DD

– Not required for employers that did not issue 250 W-2s in prior year• IRS Notice 2012-09

– Special control group rule

• Summary of Benefits and Coverage requirements – For open enrollment periods starting on or after September 23, 2012– Carriers and most TPAs will handle– Accelerated notice rule applies for off plan year cycle changes

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Urgent Requirements• Exchange notifications: Requirement for employers to notify

employees of the availability of health insurance Exchanges – Was originally due by March 2013– Postponed until the fall / Model notice in development – Delay necessary as two/thirds states have refused to move forward

with exchange programs

• Implement $2,500 limit on employee contributions to health flexible spending accounts (FSAs)

– For plan years beginning in 2013 (not the tax year)– Opportunity to explain FSA operation to workers in plan materials– Revenue enhancement to treasury– Impact on parents with special needs children – Follows on heels of recent elimination of over-the-counter

medications

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Women’s Preventive CareComply with women’s health coverage expansions

under preventive care rule• Not applicable to grandfathered plans• Full preventive care list at www.healthcare.gov/prevention

Guidelines for women’s health adopted for plan years on or after 8/1/12 (1/1/13 for calendar year plans)

• List at www.hrsa.gov/womensguidelines• Safe harbor delay for religious employers

• Permanent exemption • One year safe harbor• Special option for insured religious non-profits • Legal challenges

• Reasonable medical management allowed

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PPACA Requirements for 2014“Pay-or-play” mandate (more detail later)

• Penalties apply for employers who either:– Fail to offer health coverage; or – Offer health coverage that is either “unaffordable” (as defined by

PPACA) or does not provide “minimum value” – Coverage not required for spouses / dependents pay full cost– Special rule for non-calendar year plans

Employers must report on health coverage of each eligible employee and family members:

• Name / Address / SSN• All covered individuals• Detail of coverage + other data• Showcases coverage to Feds on a month-by-month basis

– Similar to Massachusetts Form 1099-HC• Starting in January 2015 (for coverage provided in 2014)

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Wellness Opportunity for 2014Law increases wellness incentives from 20% to 30% of total

premium (employer and employee shares)• 30-50% of the total premium can be shifted to participants:

– who don’t participate in screening, – who fail biometric screening and who either

» don’t engage in the wellness program or » fail to improve their health via the program

• New guidance enables 50% differential for tobacco cessation– Tobacco usage surcharge applied inclusively (e.g. 30 + 20)

• Separate from the 9.5% affordability rule, so you can layer over the lowest employee premium for basic plan– Use to shift more premium to employees & to deter enrollment

• Can be imposed on family members• Wellness regulations / HIPAA nondiscrimination continue to apply

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Status of Nondiscrimination RulesCompliance delayed and remains pending

• Non-discrimination rules for insured health plans – Plan testing requirement added to measure whether benefits and

/or eligibility skewed to favor highly compensated employees• Testing to be modeled after self-funded plan requirements

– Applies to non-grandfathered insured plans, but currently “on hold” under an IRS non-enforcement policy

– Effective date unknown– Six month compliance transition period promised

• IRS delayed application of testing to insured plans in Notice 2011-1

• Grandfathered plans will remain excused from compliance as long as grandfathered

• Remaining grandfathered will be difficult

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Ongoing MLR RebatesCarrier filings show $1 Billion+ in rebates• Sounds impressive, but not the windfall some

predicted $14-127 average annual rebate for 2011

calendar year premiums• Rebate not triggered for most participants• Individual market purchasers receive biggest

rebates• Self-Funded plans are not bound by the MLR

requirements, so no self-funded employers or employees in a self-funded plan will get a rebate

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Additional concernsAutomatic enrollment of new employees in a group health plan

• Applies to organizations with more than 200 employees• Effective date unknown, except that it will apply after 2014

“Cadillac Tax” on high-cost health plans• Effective for 2018• Forty percent excise tax on employers offering coverage that is

too rich – Generally, plans with a value over $10,200 single and $27,500

family• Some group health plans are already at these valuation

thresholds due to unavoidable issues like union contracts and geography

• Government estimates 66% of plans will pay tax soon after effective date

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Summary of New PPACA Taxes• Excise Tax on Charitable

Hospitals (01-2010)• Drug Maker profit tax (01-2010) • Indoor Tanning Services (07-2010)• OTC reimbursement restrictions

(01-2011) • HSA Withdrawal Penalty (01-2011) • Investment Income Surtax (01-

2013)  • Medicare Payroll Tax (01-2013)• Flexible Spending Account $2500

Reimbursement cap (01-2013)• Participant fee for Comparative

Effectiveness Research (07-2013)

• Tax on Medical Device Manufacturers (01-2013)

• Form 1040 / Medical Itemized Deduction jumps from 7.5% to 10% of AGI (01-2013)

• Elimination of tax deduction for Medicare Part D (01-2013)

• Reinsurance Fees for TPAs and Insurers (01-2014)

• Tax on Health Insurers (01-2014)• Individual Mandate Tax (01-2014) • Employer Mandate Tax (01-2014) • “Cadillac Excise Tax” on

Comprehensive Health Insurance Plans (01-2018)

• Employer Reporting of Insurance on W-2 (Prelude to taxing health benefits on individual tax returns?)17

New GHP Fees & TaxesDescription Date Timing Payment Cycle Targeted Plans

CER

Comparative Effectiveness Research: Funds Patient-Centered Outcomes Research Institute to assist policy-

makers in making informed health decisions by advancing the quality of evidence-based medicine using comparative

clinical effectiveness outcomes measurements. IRS has issued proposed rule.

With plan years ending after 10/1/12

Begins 2012 (Scheduled to phase out in

2019)July 31

Fully Insured and ASO (ASO paid and remitted

by plan sponsor)

Insurer FeeAnnual fee on health insurance sector, allocated by market share, to fund health insurance exchange subsidies. Fees

assessed on earned health insurance premiums, with certain exclusions. No federal guidance received to date.

1/1/14 PermanentNo later than

September 30 of such calendar year

Fully Insured only(Will be passed to

policy holders)

Reinsurance FeeTransitional fees to stabilize individual and small group markets; assessed on a per capita basis for both fully-

insured and ASO members. 1/1/14 3 Years (2014-

2016)

Fully Insured: State determined ASO: Federal, Quarterly

basis beginning 1/1/14

Fully Insured and ASO (ASO funded by plan

sponsor, TPA remit on behalf of ASO groups)

Cadillac Tax

Imposes an excise tax on insurers and employers who offer rich benefit coverage. 40% of value of employer-sponsored

coverage exceeding $10,200 individual/$27,500 family. Indexed by cost of living (NOT medical inflation) in

subsequent years.1/1/18 Permanent TBA Fully Insured and ASO

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GHP Taxes and Fees• Comparative Effectiveness Research fees will be

assessed ($1 per covered life for first year) – Generally paid using IRS Form 720 starting in July 2013– Fees collected for Plan Years 2012 through 2018

• Reinsurance fees announced for 2014– $63 per covered life regardless of plan funding– Three year program

• Health Insurance Industry Fee (Insured plans only)– Law imposes a tax on insurers based on their market share,

which is used to allocate the dollar amount stated in the law– Estimates range from 1.5 – 2.5% of premium– Includes insured dental and vision (typically considered

excepted benefits)

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Click to edit Master title styleEmployer Mandate

What it means to your organization

Why many employers need help…IRS Preamble to Proposed Regulations (12-28-12)

Employer payment liability explained

“Section 4980H generally provides that an applicable large employer is subject to an assessable payment if either (1) the employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan and any full-time employee is certified to the employer as having received an applicable premium tax credit or cost-sharing reduction (section 4980H(a) liability), or (2) the employer offers its full-time employees (and their dependents) the opportunity to enroll in MEC under an eligible employer-sponsored plan and one or more full-time employees is certified to the employer as having received an applicable premium tax credit or cost-sharing reduction (section 4980H(b) liability).”

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Employer Subject to PenaltyApplicable Large Employer

– “Large” means the employer had an average of 50 or more fulltime employees on business days in prior calendar year

– Employer status is determined on controlled group basis (aggregation, like for retirement plan)• IRS will carefully monitor application of control group

rules– EIN not the indicator used to differentiate employers– Common-law employment principles apply when

determining employment relationship

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Employer Mandate: A closer lookPPACA mandates that employers provide health coverage starting as early as January 1, 2014

• Calendar year plans: Mandate starts first day of 2014 – Unless non-calendar year in place on December 27, 2012– Special rule: Were 25% enrolled or 33% offered coverage?

• Planning should begin well ahead of compliance date• Measurement to identify full time workers in 2013

Employers with over 50 employees must offer coverage to full-time workers and dependents (not spouse)

• Coverage must be “affordable” for the employee • Penalties generally lower than the cost of coverage but intangible

factors apply• Budgetary pressures expected to force government to revisit and

ratchet up its original penalty thresholds

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How is Compliance Achieved?To comply, an employer must offer a minimum level of health plan coverage to full-time employees and their dependents (spousal coverage is OPTIONAL)

• The key word is “offer” – employees can still waive coverage– Waiving coverage eliminates tax credit eligibility

• What will that cost be? – Determining that figure should be done as soon as possible

• Employers must carefully compare penalty exposure to the cost of compliance and weigh the decision versus intangibles

– Tax advantages– Workforce expectations– Strapped ERs may consider dropping spousal eligibility

• Several studies suggest that less than ten percent of employers plan to discontinue benefits and pay the penalty

• HUB International Health Care Reform Impact Tool (HCR-IT)24

Practical ImpactsFocus of employers will be on the employees

• Splintering of traditional ER health coverage model– Participant migration: Employers may find employees sticking with

the plan but other family members shifting to Exchange coverage• ER only has to make one option “affordable”

– Workers may buy up to other design options • Most ERs will shift all dependent coverage cost to EE (full cost of

spouse too, if spousal coverage offered)– Exchanges will use on-line system to screen for whether the employer

complies with the mandate• Government will use information from the group’s reporting of

coverage• Tax credits denied to family members with “unaffordable”

• Individual penalty will be waived• Different result if spouse is “excluded” from eligibility

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How is Affordability Achieved?IRS: New Affordability Safe Harbors

• ER bases contribution for EE-only coverage on no more than 9.5% of wages reported in Box 1 of Form W2

– Box 1 income will not reflect elective deferrals for Section 125 and pension contributions

– Income deferrals skew final affordability number in EEs favor– Projection required / Definitive number unknown until year end

• Rate of Pay – ER uses non-exempt worker’s hourly wage rate, multiplied by 130

hours and determines affordability based on 9.5% of that total– ER uses monthly salary for exempt workers

• Federal Poverty Level– Coverage is affordable if the EE cost for single coverage does not

exceed 9.5% of the federal poverty level for a single individual– $11,170 for 2012; higher in Alaska and Hawaii

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Click to edit Master title styleLocalized Penalty Impact inside Control Group

General categories

– Parent-subsidiary: An entity has an 80% or more controlling interest in another entity

– Brother-sister group: Same five (5) or fewer people (or trusts/estates) together own more than 50% of each entity • IRS will apply ownership attribution rules

– Formal legal opinion establishing existence of control group relationship, or the absence of a control group is strongly recommended

Controlled Group Rules

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Mandate Penalty Localized

Parent(40 EEs)

Company A(20 EEs)

Company B(20 EEs)

80% 80%

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Mandate Penalty Localized Example

• Employer A and B are two members of a control group– Employer A with 40 FT EEs in each calendar month of 2015– Employer B employs 35 FT EEs in 2015– 75 EEs across control group = Large ER subject to mandate

• Employer A: No GHP for any calendar month of 2015, and at least one FT EE receives tax credit assistance for exchange

• Employer B: Sponsors GHP plan and all FT EEs are eligible for minimum essential coverage (affordable and minimum value)

Conclusion• Employer A is subject to PPACA penalty for 2015 of $48K

– Equal to 24 × $2,000 (40 EEs reduced by 16 (its allocable share of the 30-employee offset ((40/75) × 30 = 16)) and then multiplied by $2,000

• Employer B not subject to penalty for 2015– Assessment of $3K penalty would be charged to EIN of member company

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Click to edit Master title styleIRS FT/PT Measurement Guidance

IRS Measurement GuidanceNew guidance items

• IRS Notice 2012-58 Describes safe harbor methods that ERs may use to

determine which EEs are treated as FT for mandate purposes

• IRS Guidance (January 3, 2013 in Federal Register) Tracking must start no later than July 1, 2013, and must

end no earlier than 90 days before the first day of the 2014 plan year

• IRS offers favorable rules, particularly to industries with many contingent workers Good faith standard, reasonable protocols Retail, franchise, construction, hospitality, etc Generally workable standards / administratively tedious

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• Variable hour EE (New): A new EE is a “variable hour EE” if, based on the facts and circumstances at the start date, it cannot be determined that the EE is reasonably expected to work on average at least 30 hours per week.

• Variable hour EE (Ongoing): Same as above, except service extends beyond a standard employer “measurement period.”

• Seasonal: Notice 2012-58 allows ERs to use “a reasonable, good faith interpretation of the term ‘seasonal EE’ for purposes of this notice.” • Key questions:

• Is seasonal job something that can only be performed at certain times of the year?

• Is the seasonal job tied to a retail position?• Example: Ski Instructor / Christmas season sales clerk

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IRS Measurement Guidance

Implementing Measurement Guidance

Step One: Make appropriate Employment Classifications

At time of hire, determine if a new worker is full-time or will work variable hours or perhaps be seasonal• If full-time, put person on plan within 90 days• If the person will work variable hours (or will be seasonal),

tell the person in writing of that determination, which can be done with other materials at time of hire

• Document each type of employment status in the new employee’s HR file (or benefits file if there is one)

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Implementing Measurement Guidance

Step Two: Amend the health plan eligibility rules

• Revise plan document to address both employees who are full-time and employees who are not designated full time at time of hire Variable hour workers excluded during measurement period “Magic words” / consistent documentation strategically position

ER Communicate with affected EEs to ensure health coverage

expectations are correctly managed.• Establish internal time period during which ER will measure hours

worked for any employee not designated as full-time• ER can choose measurement period of between three to 12

months Most employers will use 12 months Ongoing employees

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Implementing Measurement Guidance

Step Three: Measure and track hours worked

For anyone not hired as full-time, measure hours actually worked during the three – 12 month period. That includes hours they will receive pay, such as vacation, sick time, jury duty, etc.

• If ER determines the employee is full-time, offer the employee coverage for at least six months, but usually employers will offer coverage for 12 months.

• If ER determines the person is working part-time hours, you would not offer coverage. But you would again begin to measure whether the person is full- or part-time, transitioning them to the usual three-12 month period you use for on-going employees.

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Click to edit Master title styleCompliance Recap

How you can prepare for PPACA changes

Compliance RecapKey Concerns for 2013

• Who is full time? Count workers in 2013 to identify which EEs trigger mandate• Review use of independent contractors / 1099 workers – IRS audit area• Variable Hour Workers – begin measuring hours and excluding coverage as appropriate • In 2014 ER mandate will require: Affordable, minimum coverage to all full time EEs (more

than 130 hours per month)– Mandate requires: Minimum coverage offered to children to age 26 (affordability

optional)– Mandate does not require: Coverage to spouses or any part-time workers

• Non-calendar year plans: IRS will not start penalizing ERs for mandate failures until the first plan year anniversary inside 2014 (if non-calendar year plan was in place on 12-27-12) but special conditions must be satisfied

• ER must deliver Exchange notifications: Scheduled for Fall, 2013• Wellness: Starting in 2014, outcomes based penalty cap moves from 20 to 30 percent (as

high as 50% for smokers)• Contraceptive coverage under preventative care rule• Health FSA limit at $2500• Comparative Effectiveness Research fees start July 31, 2013• Exchanges to go on-line to support Individual Mandate

– Absence of spousal coverage and robust quality of particular Exchange will impact GHP• Preexisting condition exclusions comprehensively removed in 2014

– Address possible risk exposure with stop loss providers / vis-à-vis clinical trial coverage38

Click to edit Master title stylePPACA: Advanced Planning

2013 and beyond

PPACA: Advanced PlanningWhy do employers offer a GHP today?

– Recruit/Retain great employees– Manage health and productivity– Improve Absenteeism/Presenteeism– Efficiency of tax-favored status – FICA, deductibility

Bottom Line:– Difficult to find scenario where it makes sense to

abandon plan sponsorship– $2k/$3k isn’t sustainable (Costs exceed $8,500)– Penalties aren’t geographically indexed (CA, NY, NJ)– Penalties are not tax deductible– Eliminating the plan typically ‘requires’ a corollary

adjustment in pay ($8500 = $12,500) 40

PPACA: Advanced Planning• Worst-Case Scenario . . . Improved for 50+

– Multiply penalty times all employees (total universe)– Structure plans (at least one) that meet Minimum Essential

Standards– Measure it against the ‘Affordability’ definition of 9.5% of

payroll (employee-only ‘safe-harbor’ definition)– Employee-only to exclude spouses (or ‘price’ appropriately

together with dependents – as today)• Manage P/T and F/T issues:

– Use Variable employee definition– Identify ‘must-have employees (fewer hours = fewer key ees)– Defining staff <29 tough to pull off = for every

3 workers hire a 4th (hiring/training/turnover/payroll, etc.)

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PPACA: Advanced Planning• Take GHP to the next level:

– Conduct Dependent and Claims audits to drive accountability

– Self-funding offers key advantages in some circumstances– Use CDHP to manage EE behavior around healthcare

spending . . . And to manage the 2018 Excise Tax– Shift aggressively toward wellness Incentives: 30%/50%– Highlight Total Compensation Statements

• Ensure the long term cost challenges are run in parallel with administrative and regulatory focus

• Explore Private Exchange Solution42

Click to edit Master title style

Thank You!

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